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Brazos Trial Over $1.9B ERCOT Bill Paused For Mediation

Mar 3, 2022

Law360 (March 3, 2022, 4:30 PM EST) -- Bankrupt retail power provider Brazos Electric Power Cooperative Inc. agreed Thursday to suspend a trial underway in Texas bankruptcy court over the Texas electricity market regulator's $1.9 billion claim against it, so the parties can engage in mediation and come to an agreement on the appropriate amount of the claim.

After a midday break during the eighth day of the trial, representatives for Brazos and the Electric Reliability Council of Texas returned to the courtroom and announced the proceedings would be suspended for the next few weeks as they pursued a mediated settlement of the council's claims for charges incurred by the debtor during a February 2021 winter storm that saw market prices for energy skyrocket due to decreased supply and surging demand.

"We're agreeing to a temporary and immediate suspension of the trial with the trial to recommence sometime in April," Brazos attorney Louis R. Strubeck Jr. of O'Melveny & Myers LLP said, adding that the parties had agreed to submit to mediation before U.S. Bankruptcy Judge Marvin Isgur.

ERCOT attorney Jamil N. Alibhai of Munsch Hardt Kopf & Harr PC said his client was eager to find a mutually agreeable resolution to the dispute to bolster the reliability of Texas' electricity market.

"ERCOT worries about Texas and Texans as much as anyone else does because that's part of their job in keeping that grid up," Alibhai told the court, saying he was appreciative of the court's willingness to allow alternative means to resolve the dispute for the good of the state and its residents.

U.S. Bankruptcy Judge David R. Jones had addressed the parties earlier in the day, urging them to seek a solution to the pricing problems that drove Brazos into bankruptcy and have created uncertainty with regard to the stability of the state's power grid.

"The ERCOT grid is not just a company, it is a lifeblood for everybody that lives in this state," Judge Jones said "It just seems to me we ought to be figuring out a way to make all this fit together and make it work."

Strubeck said Brazos would be filing a stipulation agreeing to a minimum amount the debtor owes to ERCOT for power purchased from the market during the 2021 winter storm. That minimum amount of about $762 million will serve as a starting point for negotiations before the mediator, he said.

The Public Utility Commission of Texas will also be invited to participate in the mediation, as will other electricity retailers impacted by the winter storm and currently engaged in bankruptcy filings of their own, including Just Energy and Griddy Energy.

Brazos sought bankruptcy protection March 1, 2021, saying it had been forced into a liquidity crisis after it was hit with $2.2 billion in wholesale power bills and ancillary costs after Winter Storm Uri shut down power generation across the state, leaving millions without electricity for days.

In August 2021, Brazos filed its adversary complaint against ERCOT, seeking to reject the power grid operator's $1.9 billion bankruptcy claim stemming from the bill it presented to Brazos in the wake of the storm.

Brazos Electric Power Cooperative Inc. is represented by Louis R. Strubeck Jr. and Nick Hendrix of O'Melveny & Myers LLP, Jason L. Boland, Julie G. Harrison, Maria Mokrzycka, Paul Trahan and Steve A. Peirce of Norton Rose Fulbright LLP, and Lino Mendiola III of Eversheds Sutherland.

ERCOT is represented by Jamil N. Alibhai, Kevin M. Lippman, Ross Howard Parker and Deborah Michelle Perry of Munsch Hardt Kopf & Harr PC and Elliot Clark of Winstead PC.

The adversary case is Brazos Electric Power Cooperative Inc. v. the Electric Reliability Council of Texas Inc., case number 4:21-ap-3863, in the U.S. Bankruptcy Court of the Southern District of Texas.

The bankruptcy case is In re: Brazos Electric Power Cooperative Inc., case number 4:21-bk-30725, in the same venue.

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